We present spatially-resolved , near-diffraction-limited 10 \mu m spectra of the nucleus of the Seyfert 2 galaxy NGC 1068 , obtained with Michelle , the mid-IR imager and spectrometer on the 8.1 m Gemini North telescope . The spectra cover the nucleus and the central 6.0″ \times 0.4″ of the ionization cones at a spatial resolution of approximately 0.4″ ( \approx 30 parsecs ) . The spectra extracted in 0.4″ steps along the slit reveal striking variations in continuum slope , silicate feature profile and depth , and fine structure line fluxes on subarcsecond scales , illustrating in unprecedented detail the complexity of the circumnuclear regions of this galaxy at mid-IR wavelengths . A comparison of photometry in various apertures reveals two distinct components : a compact ( radius < 15 pc ) , bright source within the central 0.4″ \times 0.4″ and extended , lower brightness emission . We identify the compact source with the AGN obscuring torus , and the diffuse component with the AGN-heated dust in the ionization cones . While the torus emission dominates the flux observed in the near-IR , the mid-IR flux measured with apertures larger than about 1″ is dominated instead by the dust emission from the ionization cones ; in spite of its higher brightness , the torus contributes less than 30 % of the 11.6 \mu m flux contained in the central 1.2″ region . Many previous attempts to determine the torus spectral energy distribution are thus likely to be significantly affected by contamination from the extended emission . The observed spectrum of the compact source is compared with clumpy torus models , the first detailed comparison of such models with observational data . The models require most of the mid-IR emitting clouds to be located within a few parsecs of the central engine , in good agreement with recent mid-IR interferometric observations . We also present a UKIRT/CGS4 5 \mu m spectrum covering the R ( 0 ) – R ( 4 ) lines of the fundamental vibration-rotation band of ^ { 12 } CO. None of these lines was detected , and we discuss these non-detections in terms of the filling factor and composition of the nuclear clouds .